-------------------- BEGINNING OF PAGE #1 ------------------- UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION INVESTMENT ADVISER ACT OF 1940 Release No. 1538 / November 27, 1995 ADMINISTRATIVE PROCEEDINGS File No. 3-8884 --------------------------------------- : In the Matter of : ORDER INSTITUTING : PUBLIC PROCEEDINGS, The Feldman Investment Group, Inc. : MAKING FINDINGS AND : IMPOSING REMEDIAL : SANCTIONS AND : ISSUING A CEASE : AND DESIST ORDER : --------------------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public proceedings be instituted pursuant to Sections 203(e) and (k) of the Investment Advisers Act of 1940 ("Advisers Act") against The Feldman Investment Group, Inc. ("Feldman") In anticipation of the institution of these proceedings, Feldman has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained in this Order, except as to jurisdiction and the facts set forth in paragraph II.A. below, which it admits, Feldman consents to the issuance of this Order, Making Findings and Imposing Remedial Sanctions as set forth below. Accordingly, IT IS ORDERED that proceedings pursuant to Sections 203(e) and (k) of the Advisers Act be, and hereby are, instituted. II. On the basis of this Order Instituting Proceedings and the Offer of Settlement submitted by Feldman, the Commission finds that: A. Feldman has been registered with the Commission as an investment adviser pursuant to Section 203 of the Advisers Act since July 1989 and as a broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934 since January 1980. B. During 1992 and 1993, Feldman executed approximately 5,670 riskless principal transactions for or with its advisory clients without disclosing to its advisory clients the capacity in which it was acting and without obtaining the advisory clients' consent prior to the completion of the transactions. As a result of the above-described activity, Feldman willfully violated Section 206(3) of the Advisers Act. C. During 1992 through 1994, Feldman furnished its -------------------- BEGINNING OF PAGE #2 ------------------- advisory clients and prospective clients with a marketing brochure which stated its investment philosophy and market expertise. The marketing brochure stated that Feldman had more than $5 billion under advisement when, in fact, Feldman had approximately $1.1 billion under advisement. Thus, as a result of the material misstatement contained in its marketing brochure, Feldman willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) promulgated thereunder. D. During 1994, Feldman provided its advisory clients and prospective clients with a performance summary sheet that purportedly reflected annual performance returns for Feldman's composite equity, fixed and balanced accounts for years 1992 and 1993. Feldman did not keep true, accurate and current records of all accounts, books, internal working papers and other documents used to form the basis for the performance or returns portrayed in its performance summary sheet, as required by Rule 204- 2(a)(16) promulgated under Section 204 of the Advisers Act. In addition, Feldman did not maintain and preserve the documents required by Rule 204-2(a)(16) of the Advisers Act in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the investment adviser, from the end of the fiscal year during which Feldman disseminated its performance summary sheet, as required by Rule 204-2(e)(3) of the Advisers Act. Finally, Feldman failed to keep a memorandum of each order and instruction given while transacting its advisory business, as required by Rule 204- 2(a)(3) of the Advisers Act. As a result of the foregoing, Feldman willfully violated Section 204 of the Advisers Act and Rules 204-2(a)(3), 204-2(a)(16) and 204-2(e)(3) promulgated thereunder. E. During 1992 and 1993, Feldman failed to furnish to each client a written disclosure statement which may be either a copy of Part II of its Form ADV, or a written document that contains the information required in Part II of its Form ADV. In addition, Feldman did not deliver annually, or offer in writing to deliver, a disclosure document to each of its advisory clients. Thus, Feldman willfully violated Section 204 and Rule 204-3 of the Advisers Act. F. During 1992 and 1993, Feldman did not disclose in its amendments to its Form ADV filed with the Commission, specifically Item 9, Schedule F of Part II, that an inherent conflict of interest exists when executing a principal transaction through its affiliated broker-dealer. Furthermore, Feldman did not disclose to its advisory clients what restrictions or internal procedures are used in light of the potential conflicts of interest in the principal transactions. Thus, Feldman willfully violated Section 207 of the Advisers Act. III. In view of the foregoing, the Commission finds it is in the public interest to impose the sanction specified in the Offer of Settlement. ACCORDINGLY, IT IS ORDERED that: A. Feldman cease and desist from committing or causing any violation, and committing or causing any future violation, of Sections 204, 206(3) and (4) and 207 of the Advisers Act and Rules 204-2(a)(3), 204-2(a)(16), 204-2(e)(3), 204-3 and 206(4)- 1(a)(5) promulgated thereunder; -------------------- BEGINNING OF PAGE #3 ------------------- B. Feldman shall, within seven days of the Order, pay a civil money penalty in the amount of $25,000 to the United States Treasury. Such payment shall be: (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the "United States Securities and Exchange Commission," bearing on its face the caption "The Feldman Investment Group, Inc. (C-2792)"; (c) sent to the Securities and Exchange Commission, Office of the Comptroller, Room 2067, Stop 2-5, 450 5th Street, N.W., Washington, D.C. 20549; and (d) sent under cover letter which identifies Feldman as a respondent in these proceedings, a copy of which cover letter and money order or check shall be sent to Randall J. Fons, Associate Regional Director, Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511; and C. Feldman shall comply with the following undertakings: 1. within sixty days of the issuance of the Order, to adopt written policies and procedures reasonably designed to prevent and detect future violations of Section 206(3) of the Advisers Act; 2. within sixty days of the issuance of this Order, to maintain compliance staff with responsibility for monitoring Feldman's compliance with the requirements of Section 206(3) of the Advisers Act which includes, for transactions in which Feldman acts in a principal capacity, providing disclosure to clients in writing before completion of the transaction regarding the capacity in which it is acting and obtaining the prior consent of the client to the transaction; 3. within sixty days of the issuance of the Order, to revise its training and procedure manuals to reflect and implement new policies and procedures as they relate to compliance with Section 206(3) of the Advisers Act as described in paragraphs C.1. and C.2. above and provide training to relevant employees designed reasonably to effect understanding of and compliance with the newly implemented policies and procedures; 4. within ninety days of the issuance of the Order, to provide an affidavit evincing compliance with paragraphs C.1. through C.3. above; and 5. within ninety days of the issuance of this Order, to submit a report to the staff of the Commission detailing the policies and procedures adopted pursuant to paragraphs C.1. through C.3. above. By the Commission. Jonathan G. Katz Secretary